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2. The labor demand elasticity is -0.6 and the labor supply elasticity is 0.1. Suppose that we have a binding minimum wage at $7 in
2. The labor demand elasticity is -0.6 and the labor supply elasticity is 0.1. Suppose that we have a binding minimum wage at $7 in a perfectly competitive labor market. At this minimum wage, there are 20,000 people employed.
a. What would happen to employment if the minimum wage is increased to $10.50?
b. What happens to the total wages of employees?
c. What are the benefits and costs of this policy?
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